Japanese Banks Warn of Rising Bond Yields' Potential for Losses

Japan's main bank industry group has warned of rising bond yields leading to potential writedowns and losses for banks. The Japanese Bankers Association, led by Masahiko Kato, chairman and CEO of Mizuho Financial Group Inc's main lending arm, stated that a prolonged increase in government bond yields could result in significant losses.

The association believes that banks will wait until there is more clarity on the outlook for yields and a peak in policy rates before increasing their holdings of Japanese government bonds (JGBs). The country's lenders have been sitting on substantial unrealized losses on JGBs due to soaring yields. However, these losses remain at a manageable level, according to Financial Services Agency commissioner Yutaka Ito.

The Bank of Japan is expected to raise its policy rate to 1.25% this week, with the benchmark 10-year bond yield recently reaching 3% for the first time in 30 years. Kato emphasized that he expects more hikes by the BOJ and hopes Prime Minister Sanae Takaichi's new cabinet will implement policies leading to sustainable growth and financial market stability.